Recent College Grad Investment Advice

[awf170]

Hello everyone,

I hate to be that guy who's first post on forum is asking a question... but I am going to be that guy.

Anyway, I'm looking for a little investment advice.  Not looking for spending advice since I think I'm already a pretty frugal bastard.

Here is all my info that I can think of at the moment:

-I have absolutely no debt (internships and work throughout school)
-I current have about $5000 in my checking/saving accounts
-My car is solid and should just need minor work for the next few years ('07 impreza, 95k)
-Starting a job next week that pays $57,000 a year.
-I spend about 18k a year (I'm quite cheap, but apartments are expensive in my area and I have a mountain biking addiction that eats up thousands every year)
- I want to buy a house as soon possible (housing is relativity inexpensive compared to renting in this area)
-I honestly like what I do and don't have goals of crazy earlier retirement, but like the idea of not having to work if I don't need to. 

total: 57k
after taxes: 40k (let me know if this is way out of whack, just used some quick online tool.  Going to be working in VT and living in NH)
401k (me): 2.6k (minimum to get max employee contribution)
401k (them): 2.1k
ESOP (them): 1.7k
Living expenses: 18k
dental/health: 1k

That leaves about 18k to invest and this is where I have no idea what to do. 
Anywho... here is what, in my very  un-expert opinion, I'm thinking:

roth ira: 5k (max this out?)
mutual funds: 5k (vanguard?)
lending club: 2k (it just seems like a fun thing to try to me)
house saving: 6k (no idea what to do short term, just standard shitty interest rate savings account?)

Have at it.  Thanks in advance, since I already know you guys (and gals) will have some fantastic advice for me.

-Austin

[sherr]

-Starting a job next week that pays $57,000 a year.

roth ira: 5k (max this out?)
mutual funds: 5k (vanguard?)
lending club: 2k (it just seems like a fun thing to try to me)
house saving: 6k (no idea what to do short term, just standard shitty interest rate savings account?)

Given how much money you make you might seriously consider a Traditional IRA instead of the Roth, and I'd say yes, max it out. I may start sounding like a broken record if I keep advocating Traditional IRAs so much, but I think they are a better deal for people in our situation. Here's a post where I talk about it in more detail: https://forum.mrmoneymustache.com/investor-alley/forbes-roth-401%28k%29-conversions-for-all-thanks-to-fiscal-cliff-deal/msg47012/#msg47012

Secondly, assuming you have reasonable fund options in your 401k I would contribute more to that before investing anything in a non-tax-advantaged account. I only contribute to my Vanguard account once I have maxed out 401k and IRAs. But Vanguard is an excellent choice as far as mutual fund options go. I suggest a passive index fund.

There are other threads here about Lending Club and similar. I'm not personally interested in it yet, but if you are then go ahead. I wouldn't put anything in there that you think you'll need later though.

As far as the house savings go, a high rate savings account is what I did. We were looking at a very short investment term (a little over a year) so something that fluctuates wildly like the stock market didn't make much sense. If you shop around you might be able to find an online or local bank that will 3% for a savings account, although that's usually a temporary deal that goes down to 1% after a couple of years. Still, with today's interest rates being so low there may not be any better options for short-term money.

[lauren_knows]

I would first question the need for buying a house so early in your career.  It's pretty valuable to be as mobile as possible as you advance in the first few years.

Barring that point, you stated that you wanted to buy a house ASAP.  What is the price range you're looking at? It's advantageous to put at least 20% down to get rid of PMI. This info is also required to determine just how short of a timeline we're looking at, to consider other investment choices.

Funding your Roth IRA is a good choice, since you can withdraw up to $10k of principle to fund a home purchase.  You can also fund 2012's IRA up until April 15th, as long as you had SOME sort of earned income in 2012 (you need at least enough income to equal your contribution).

[sherr]

Barring that point, you stated that you wanted to buy a house ASAP.  What is the price range you're looking at? It's advantageous to put at least 20% down to get rid of PMI. This info is also required to determine just how short of a timeline we're looking at, to consider other investment choices.

Funding your Roth IRA is a good choice, since you can withdraw up to $10k of principle to fund a home purchase.  You can also fund 2012's IRA up until April 15th, as long as you had SOME sort of earned income in 2012 (you need at least enough income to equal your contribution).

This is an excellent point. To add to it, if you really want a house ASAP then you could forgo the other forms of savings / investing to focus entirely on building your down-payment. That is essentially what you'd be doing by using Roth principal to pay for the house anyway.

There's not really a "wrong" way to save. There may be ways that net higher interest, or that carry lower risk, or that have more built-in tax advantages. The way that is "right" for you depends on what your priorities and goals and risk aversion are.

If you are using your Roth as a way to get a little more (but risky!) tax-free interest on your down-payment, then yes that is fine. If you are using your Roth as a Retirement Account, then no, I'd still say Traditional is better.

[Fuyu]

Just a little thing. I calculated the federal, state, and social security tax on Excel. And the amount came out a little less than the online calculator. I added a row for traditional IRA if you decided to do that instead of Roth IRA.

[NateDogg]

Disclaimer, I grew up near Brattleboro, VT. I recommend purchasing a house in VT, not NH. NH doesn't have sales tax, so they make up for it in property tax. Those relatively high property taxes mean that cost of ownership goes up significantly when you do maintenance/upgrades to your home. So people don't do it. Therefore homes in NH tend to be rougher than in neighboring states. Conclusion: NH is a good place to shop, and therefore to own a retail business, but it's not such a good place to own a house.

I haven't lived there for 10+ years. Is it still that way? Anyone have newer, better thoughts?